MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 1 -
FINANCIAL HIGHLIGHTS
The tables below set out selected information from the condensed consolidated interim financial statements of
Boston Pizza International Inc. (“BPI” and where applicable also includes its wholly-owned subsidiaries), and the
accounts of Boston Pizza Canada Limited Partnership (“BP Canada LP”), together with other data, and should be
read in conjunction with the condensed consolidated interim financial statements of BPI for the three-month and
nine-month periods ended September 30, 2021 and September 30, 2020, and in conjunction with the Management
Discussion and Analysis (“MD&A”) of BPI for the year ended December 31, 2020. The financial information
reported in the tables included in this MD&A are reported in accordance with International Financial Reporting
Standards (“IFRS”) except as otherwise noted and are stated in Canadian dollars.
123
1
) “System-Wide Gross Sales” means the gross revenue: (i) of the corporate Boston Pizza Restaurants (defined below) in Canada owned by BPI; and (ii) reported to BP Canada LP by
franchised Boston Pizza Restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), including revenue from the sale of liquor, beer,
wine and revenue from BP Canada LP approved national promotions and discounts, but excluding applicable sales and similar taxes.
2
) As at the end of the applicable period.
3
) “Franchise Sales” means the gross revenue: (i) of the corporate Boston Pizza Restaurants in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston Pizza
Restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor, beer, wine and revenue
from BP Canada LP approved national promotions and discounts, and excluding applicable sales and similar taxes.
For the periods ended September 30 Q3 2021 Q3 2020 YTD 2021 YTD 2020
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
266,363 237,208 586,035 591,810
Number of Boston Pizza Restaurants
2
385 388 385 388
Franchise Sales reported by Boston Pizza Restaurants
3
213,038 186,412 476,874 468,437
Income Statement Data
Total revenues 28,426 24,499 64,021 64,553
Royalty expense (8,522) (7,417) (19,075) (18,666)
Distribution expense (2,815) (2,452) (6,329) (6,168)
Operating expenses excluding Royalty and Distribution expense (10,349) (12,906) (29,396) (39,015)
Earnings before interest and fair value gain (loss) 6,740 1,724 9,221 704
Net interest expense (142) (700) (367) (1,121)
Fair value gain (loss) 2,177 7,109 (7,715) 23,971
Earnings before income taxes 8,775 8,133 1,139 23,554
Current and deferred income tax (expense) recovery (1,925) 1,127 (2,312) 4,958
Net and comprehensive income (loss) 6,850 9,260 (1,173) 28,512
Basic and diluted income (loss) per share 69.84 94.41 (11.96) 290.68
Balance Sheet Data Sept 30, 2021 Dec 31, 2020
Total assets 148,526 147,829
Total liabilities 404,915 403,045
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 2 -
SUMMARY OF QUARTERLY RESULTS
Q3 2021 Q2 2021 Q1 2021 Q4 2020
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
266,363 162,931 156,741 181,723
Number of Boston Pizza Restaurants
2
385 385 386 387
Franchise Sales reported by Boston Pizza Restaurants
3
213,038 134,839 128,997 146,657
Income Statement Data
Total revenues 28,426 18,296 17,299 21,522
Royalty expense (8,522) (5,393) (5,160) (5,862)
Distribution expense (2,815) (1,797) (1,717) (1,946)
Operating expenses excluding Royalty and Distribution expense (10,349) (9,961) (9,086) (11,873)
Earnings before interest and fair value gain (loss) 6,740 1,145 1,336 1,841
Net interest (expense) income (142) (42) (183) 735
Fair value gain (loss) 2,177 (3,478) (6,414) (16,004)
Earnings (loss) before income taxes 8,775 (2,375) (5,261) (13,428)
Current and deferred income tax expense (1,925) (49) (338) (7,272)
Net and comprehensive income (loss) 6,850 (2,424) (5,599) (20,700)
Basic and diluted income (loss) per share 69.84 (24.71) (57.08) (211.04)
Q3 2020 Q2 2020 Q1 2020 Q4 2019
(in thousands of dollars - except number of restaurants and per share items)
System-Wide Gross Sales
1
237,208 129,845 224,757 276,509
Number of Boston Pizza Restaurants
2
388 390 394 395
Franchise Sales reported by Boston Pizza Restaurants
3
186,412 107,522 174,503 213,089
Income Statement Data
Total revenues 24,499 14,703 25,351 31,397
Royalty expense (7,417) (4,286) (6,963) (8,447)
Distribution expense (2,452) (1,423) (2,293) (2,785)
Operating expenses excluding Royalty and Distribution expense (12,906) (8,188) (17,921) (17,778)
Earnings (loss) before interest and fair value gain (loss) 1,724 806 (1,826) 2,387
Net interest (expense) income (700) (513) 92 732
Fair value gain (loss) 7,109 (3,994) 20,856 11,570
Earnings (loss) before income taxes 8,133 (3,701) 19,122 14,689
Current and deferred income tax recovery (expense) 1,127 (1,225) 5,056 2,257
Net and comprehensive income (loss) 9,260 (4,926) 24,178 16,946
Basic and diluted income (loss) per share 94.41 (50.22) 246.50 172.76
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 3 -
OVERVIEW
This MD&A covers the three-month period from July 1, 2021 to September 30, 2021 (the “Period”) and the nine-
month period from January 1, 2021 to September 30, 2021 (“YTD”) and is dated November 10, 2021. It provides
additional analysis of the operations, financial position and financial performance of BPI and should be read in
conjunction with BPI’s applicable condensed consolidated interim financial statements and the accompanying
notes. The condensed consolidated interim financial statements of BPI are in Canadian dollars and have been
prepared in accordance with IFRS except as otherwise noted.
General
BPI is a privately controlled company and prior to April 6, 2015, was the exclusive franchisor of the Boston Pizza
(defined below) concept in Canada. On April 6, 2015, BP Canada LP, a British Columbia limited partnership
controlled and operated by BPI, became the exclusive franchisor of the Boston Pizza concept in Canada. On
May 6, 2015, Boston Pizza Royalties Income Fund (the “Fund”) completed an indirect investment in BP Canada LP
to effectively increase the Fund’s indirect interest in Franchise Sales of Boston Pizza Restaurants (defined below)
in the Royalty Pool (defined below) by 1.5%, from 4.0% to 5.5% less the pro rata portion payable to BPI in respect
of its retained interest in the Fund (the “2015 Transaction”).
BPI and BP Canada LP compete in the casual dining sector of the restaurant industry and Boston Pizza is the
number one casual dining brand in Canada. With approximately 380 restaurants stretching from Victoria to St.
John’s, Boston Pizza has more restaurants and serves more customers annually than any other casual dining
restaurant chain in Canada.
Royalty
BP Canada LP charges a 7.0% royalty fee on Franchise Sales for full-service Boston Pizza restaurants open in
Canada (the “Boston Pizza Restaurants”). BPI pays Boston Pizza Royalties Limited Partnership (“Royalties LP”),
an entity controlled by the Fund, a 4.0% royalty fee (the “Royalty”) on Franchise Sales from the Boston Pizza
Restaurants in the royalty pool (the “Royalty Pool”) for the use of the Boston Pizza trademarks in Canada (the “BP
Rights”
4
). As at September 30, 2021, there were 387 Boston Pizza Restaurants in the Royalty Pool.
Distributions from BP Canada LP
Boston Pizza Holdings Limited Partnership (“Holdings LP”), an entity controlled by the Fund, holds Class 1 limited
partnership units (“Class 1 LP Units”) and Class 2 limited partnership units (“Class 2 LP Units”) of BP Canada LP,
and BPI holds, indirectly through Boston Pizza Canada Holdings Partnership (“BPCHP”), Class 2 general
partnership units of BP Canada LP (“Class 2 GP Units”), which are exchangeable for units of the Fund (“Fund
Units”). The Class 1 LP Units and Class 2 LP Units provide Holdings LP with the right to receive distributions from
BP Canada LP equal, in aggregate, to 1.5% of Franchise Sales, less the pro rata portion payable to BPI in respect
of its Class 2 GP Units (the “Distributions”). Specifically, the Class 1 LP Units entitle Holdings LP to receive a
priority distribution equal to the amount of interest that Holdings LP pays on certain indebtedness of Holdings LP
plus 0.05% of that amount, with the balance of 1.5% of Franchise Sales being distributed pro rata to Holdings LP
and BPI on the Class 2 LP Units and Class 2 GP Units, respectively. After BP Canada LP pays distributions on the
Class 1 LP Units, Class 2 LP Units and Class 2 GP Units, BPI is entitled to all residual distributions from
BP Canada LP on the Class 3 general partnership units, Class 4 general partnership units, Class 5 general
partnership units and Class 6 general partnership units of BP Canada LP that BPI holds.
4
) BP Rights are the trademarks that as at July 17, 2002 were registered or the subject of pending applications for registration under the
Trademarks Act (Canada), and other trademarks and trade names which are confusing with the registered or pending trademarks. The
BP Rights purchased do not include the rights outside of Canada to any trademarks or trade names used by BPI or any affiliated entities
in its business, and in particular do not include the rights outside of Canada to the trademarks registered or pending registration under the
Trademarks Act (Canada).
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 4 -
Addition of New Restaurants to Royalty Pool
On January 1 of each year (each, an “Adjustment Date”), an adjustment is made to add to the Royalty Pool new
Boston Pizza Restaurants that opened (“New Restaurants”) and to remove any Boston Pizza Restaurants that
permanently closed since January 1 of the previous year (“Closed Restaurants”). In return for adding new Royalty
and Distributions from the New Restaurants and after subtracting the Royalty and Distributions that are lost from
the Closed Restaurants
5
(such difference, “Net Royalty and Distributions”), BPI receives the right to indirectly
acquire additional Fund Units (in respect of the Royalty, “Class B Additional Entitlements” and in respect of
Distributions, “Class 2 Additional Entitlements”, and collectively, “Additional Entitlements”). The calculation of
Additional Entitlements is designed to be accretive to unitholders of the Fund (“Unitholders”) as the expected
increase in Franchise Sales from the New Restaurants added to the Royalty Pool less the decrease in Franchise
Sales from the Closed Restaurants is valued at a 7.5% discount. The Additional Entitlements are calculated at
92.5% of the estimated Royalty and Distributions expected to be generated by the New Restaurants less the actual
Royalty and Distributions lost from the Closed Restaurants, multiplied by one minus the effective tax rate estimated
to be paid by the Fund, divided by the yield of the Fund, divided by the weighted average Fund Unit price over a
specified period. BPI receives 80% of the Additional Entitlements initially, with the balance received when the actual
full year performance of the New Restaurants and the actual effective tax rate paid by the Fund are known with
certainty (such balance of Fund Units in respect of the increased Royalty, the “Class B Holdback”, and in respect
of the increased Distributions, the “Class 2 Holdback”, and collectively, the “Holdback”). BPI receives 100% of
the distributions on the Additional Entitlements throughout the year. After the New Restaurants have been part of
the Royalty Pool for a full year, an audit of the Franchise Sales of these restaurants is performed, and the actual
effective tax rate paid by the Fund is determined. At such time, an adjustment is made to reconcile distributions
paid to BPI and the Additional Entitlements received by BPI.
It is possible that on an Adjustment Date the Net Royalty and Distributions is negative as a result of the estimated
Royalty and Distributions expected to be generated by the New Restaurants being less than the actual Royalty and
Distributions that is lost from the Closed Restaurants (the amount by which it is less is the “Deficiency”). In such
case, BPI would not receive any Additional Entitlements, however, nor would BPI lose any of the Additional
Entitlements previously received by BPI. Rather, on future Adjustment Dates, BPI would be required to make-up
the Deficiency by first adding Net Royalty and Distributions in an amount equal to the Deficiency before receiving
any further Additional Entitlements (i.e. BPI only receives Additional Entitlements in respect of the cumulative
amount by which Royalty and Distributions from New Restaurants exceeds actual Royalty and Distributions lost
from Closed Restaurants).
Business Strategy
The success of the business of BPI, BP Canada LP, their affiliated entities and franchisees (“Boston Pizza”) can
be attributed to four simple underlying principles that are the foundation for all strategic decision-making – the “Four
Pillars” strategy.
• Building the brand
• Continually improving the guest experience
• A commitment to Franchisee profitability
• On-going engagement in local communities
BPI and BP Canada LP realize that franchisees have to be profitable to succeed. To enhance profitability and to
facilitate the growth of Boston Pizza, BPI and BP Canada LP aggressively enhance and promote the Boston Pizza
brand through television, radio, digital, social media, and national and local promotions. The costs associated with
national marketing of Boston Pizza are paid for by the Boston Pizza advertising fund (the “Advertising Fund”).
Franchisees pay 3.0% of Franchise Sales into the Co-op; 76.0% of these funds are used to purchase television,
5
) The Royalty and Distributions that are lost from the Closed Restaurants is calculated based upon the actual Franchise Sales received from
the Closed Restaurants during the first 12-month period immediately following their addition to the Royalty Pool.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 5 -
radio, digital and social media advertising, and the remaining 24.0% is used for production of materials and
administration. Both Boston Pizza franchisees and the corporate support staff continuously find new ways to
improve the guests’ experience so that guests will return to Boston Pizza again and again. Boston Pizza and its
franchisees connect with their communities by hosting events, engaging with local organizations, and supporting
philanthropic causes. Management is confident that this “Four Pillars” strategy will continue to focus BPI’s and
BP Canada LP’s efforts, develop new markets and strengthen Boston Pizza’s position as Canada’s number one
casual dining brand.
Ongoing Effects of COVID-19
COVID-19 had significant adverse effects on the business of the Fund, BPI and BP Canada LP during the Period
and YTD. Various governmental authorities across Canada had imposed assorted restrictions on the operations of
restaurants in an attempt to control the spread of COVID-19. The restrictions ranged from limiting operating hours,
reductions in permitted hours to serve alcohol, closures of indoor dining rooms and closures of patio dining
depending upon the particular regions and times within the Period and YTD. During the Period, restrictions eased
in all provinces to allow dine-in services which resulted in increased Franchise Sales. However, by the end of the
Period, various governmental authorities across Canada implemented vaccine card or vaccine passport systems
that required guests to show proof of vaccination when dining in restaurants. See the “Operating Results” section
of this MD&A for details.
COVID-19 continues to impact the business of the Fund, BPI and BP Canada LP, and the operation of Boston Pizza
Restaurants. After the end of the Period, the vaccine card or vaccine passport systems referenced above resulted
in a decrease in customer traffic to restaurants and a decrease in sales. Franchise Sales, and the resulting Royalty
and Distributions, for October 2021 were approximately 109% of the level they were in October 2020 and
approximately 88% of the level they were in October 2019. SRS for October 2021 was approximately positive 8%
when compared to the same period in 2020 and approximately negative 15% when compared to the same period
in 2019.
Seasonality
Boston Pizza Restaurants typically experience seasonal fluctuations in Franchise Sales, which are inherent in the
full-service restaurant industry in Canada. Seasonal factors, such as tourism and better weather generally allow
Boston Pizza Restaurants to open their patios and generally increase Franchise Sales in the second and third
quarters each year compared to the first and fourth quarters. It is unknown how and to what extent seasonality will
affect Franchise Sales given the effects of COVID-19 on Boston Pizza Restaurants.
New Restaurant Openings, Permanent/Temporary Closures and Renovations
During the Period, there were no New Restaurants (YTD – nil) and no Closed Restaurants (YTD – 2). The two
Closed Restaurants YTD were corporately owned restaurants operated by subsidiaries of BPI. BPI previously had
five corporately owned Boston Pizza Restaurants. BPI’s strategy is to divest itself of the remaining three corporately
owned Boston Pizza Restaurants and exclusively focus on strengthening the brand and its franchised business.
Subsequent to the end of the Period, there was one Closed Restaurant. As well, during the Period, two Boston
Pizza Restaurants were renovated (YTD – 7). Boston Pizza Restaurants typically close for two to three weeks to
complete the renovation and experience an incremental sales increase in the year following the re-opening.
OPERATING RESULTS
Same Restaurant Sales (“SRS”)
SRS
6
, a key driver of distribution growth for Unitholders, is the change in gross sales of Boston Pizza Restaurants
as compared to the gross sales for the same period in the previous year, where restaurants were open for a
6
) SRS is a non-IFRS financial measure and as such, does not have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. A reconciliation of SRS to an IFRS measure is not possible as there is no
directly comparable measure under IFRS. BPI believes that SRS provides investors with useful information regarding the change in gross
sales of Boston Pizza Restaurants.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 6 -
minimum of 24 months. The two principal factors that affect SRS are changes in guest traffic and changes in
average guest cheque.
Period
SRS was positive 13.3% for the Period compared to negative 15.2% reported in the third quarter of 2020. As
COVID-19 began to adversely affect sales in Boston Pizza Restaurants in March of 2020, BPI believes that it is
also useful to calculate and report SRS comparing 2021 gross sales to 2019 gross sales. If SRS were calculated
comparing gross sales in the Period to gross sales in the third quarter of 2019, SRS would be negative 3.8%.
Franchise Sales, the basis upon which Royalty and Distributions are paid by BPI and BP Canada LP respectively,
indirectly to the Fund, excludes revenue from sales of liquor, beer, wine and approved national promotions and
discounts. On a Franchise Sales basis, SRS was positive 15.1% for the Period compared to negative 14.6% for
the third quarter of 2020. If SRS on a Franchise Sales basis were calculated comparing Franchise Sales in the
Period to Franchise Sales in the third quarter of 2019, SRS would be negative 1.5%. The increase in SRS for the
Period was principally due to increases in restaurant guest traffic due to the easing of dining restrictions during the
Period.
YTD
SRS was positive 0.3% YTD compared to negative 28.2% reported year-to-date in 2020. If SRS were calculated
comparing gross sales YTD to gross sales year-to-date in 2019, SRS would be negative 28.1%. On a Franchise
Sales basis, SRS was positive 3.1% YTD compared to negative 27.0% year-to-date in 2020. If SRS on a Franchise
Sales basis were calculated comparing Franchise Sales YTD to Franchise Sales year-to-date in 2019, SRS would
be negative 24.7%. The increase in SRS YTD was principally due to increases in restaurant guest traffic due to the
easing of dining restrictions and increased take-out and delivery sales.
Revenues
Period
BPI’s total revenue was $28.4 million for the Period compared to $24.5 million for the third quarter of 2020. BPI’s
revenue was principally derived from royalty revenue and Advertising Fund contributions received by
BP Canada LP from franchised Boston Pizza Restaurants, sales from corporately owned restaurants, initial
franchise fees, franchise renewal fees and supplier contributions. The $3.9 million increase in revenue for the
Period was primarily due to higher royalty revenues, supplier contributions, Advertising Fund revenue and revenues
from corporately owned restaurants resulting from higher SRS.
YTD
BPI’s total revenue was $64.0 million YTD compared to $64.6 million year-to-date in 2020. The $0.6 million
decrease in revenue YTD was primarily due to lower revenues from corporately owned restaurants resulting from
closure of two corporate restaurants, partially offset by higher royalty revenues, supplier contributions, and
Advertising Fund revenues resulting from positive SRS.
Royalty Expense and Distribution Expense
Period
BPI’s Royalty expense to Royalties LP (being 4.0% of Franchise Sales from Boston Pizza Restaurants in the
Royalty Pool) was $8.5 million and Distribution expense (being 1.5% of Franchise Sales from Boston Pizza
Restaurants in the Royalty Pool, less BPI’s retained interest) was $2.8 million for the Period compared to
$7.4 million and $2.5 million, respectively, for the third quarter of 2020. The $1.1 million increase in Royalty
expense and $0.3 million increase in Distribution expense for the Period was due to positive SRS on a Franchise
Sales basis.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 7 -
YTD
BPI’s Royalty expense to Royalties LP was $19.1 million and Distribution expense was $6.3 million YTD compared
to $18.7 million and $6.2 million, respectively, year-to-date in 2020. The $0.4 million increase in Royalty expense
and $0.1 million increase in Distribution expense YTD was due to positive SRS on a Franchise Sales basis.
Operating Expenses Excluding Royalty Expense and Distribution Expense
Period
BPI’s operating expenses excluding Royalty expense and Distribution expense were $10.3 million for the Period,
which included Advertising Fund expenses of $4.1 million, compensation expense of $3.8 million, depreciation and
amortization of $1.2 million, operational costs of corporately owned restaurants of $1.2 million and other expense
associated with services provided to franchised Boston Pizza Restaurants of $0.7 million. These expenses were
partially offset by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $0.7 million. In the
third quarter of 2020, BPI’s operating expenses excluding Royalty expense and Distribution expense were $12.9
million for the Period, which included compensation expense of $4.8 million, Advertising Fund expenses of
$3.7 million, other costs associated with services provided to franchised Boston Pizza Restaurants of $2.2 million,
operational costs of corporately owned restaurants of $1.7 million and depreciation and amortization of $1.3 million.
These expenses were partially offset by the amortization of deferred gain on the sale of BP Rights to Royalties LP
of $0.7 million.
The decrease in operating expenses excluding Royalty expense and Distribution expense of $2.6 million for the
Period was due to expenses such as bad debt and compensation expense being higher in the prior year due to the
impact of COVID-19, and a decrease in restaurant operating costs resulting from the closure of two corporately
owned restaurants, partially offset by an increase in Advertising Fund expenses due to increased advertising activity
and lower government wage and rent subsidies received.
BPI is receiving government financial assistance under the Canada Emergency Wage Subsidy (“CEWS”) and
Canada Emergency Rent Subsidy (“CERS”) program. During the Period, BPI recognized $0.6 million of
government financial assistance under the CEWS and CERS programs (Q3 2020 – $2.2 million).
The deferred gain on the sale of BP Rights to Royalties LP is amortized over 99 years beginning in 2002 for the
term of the License and Royalty Agreement dated July 17, 2002, as amended on May 9, 2005, between
Royalties LP and BPI. The net deferred gain at September 30, 2021 was $225.6 million compared to $228.4 million
at September 30, 2020.
YTD
BPI’s operating expenses excluding Royalty expense and Distribution expense were $29.4 million YTD, which
included compensation expense of $11.4 million, Advertising Fund expenses of $10.7 million, depreciation and
amortization of $3.7 million, other expense associated with services provided to franchised Boston Pizza
Restaurants of $3.3 million, and operational costs of corporately owned restaurants of $2.5 million. These expenses
were partially offset by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $2.1 million.
During the same period in 2020, BPI’s operating expenses excluding Royalty expense and Distribution expense
were $39.0 million YTD, which included Advertising Fund expenses of $12.6 million, compensation expense of
$11.8 million, operational costs of corporately owned restaurants of $6.3 million, other costs associated with
services provided to franchised Boston Pizza Restaurants of $5.8 million, depreciation and amortization of
$4.2 million, and management fees for services rendered by companies under common control of $0.4 million. This
was partially offset by the amortization of deferred gain on the sale of BP Rights to Royalties LP of $2.1 million.
The decrease in operating expenses excluding Royalty expense and Distribution expense of $9.6 million YTD was
attributed to a decrease in restaurant operating costs resulting from the closure of two corporately owned
restaurants, a decrease in other expenses including reduced bad debt expense and decreased travel as a measure
to reduce costs, a decrease in Advertising Fund expenses due to timing of advertising activity, a decrease in
compensation and management fees, and a decrease in depreciation and amortization.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 8 -
YTD, BPI recognized $3.7 million of government financial assistance under the CEWS and CERS programs (2020
– $3.8 million).
Earnings before Interest and Fair Value Gain (Loss)
Period
BPI’s earnings before interest and fair value gain (loss) was $6.7 million for the Period compared to $1.7 million for
the third quarter of 2020. The $5.0 million increase in earnings before interest and fair value gain (loss) for the
Period was principally due to an increase in revenues and a decrease in operating expenses, partially offset by
increases in Royalty and Distribution expenses.
YTD
BPI’s earnings before interest and fair value gain (loss) was $9.2 million YTD compared to $0.7 million year-to-date
in 2020. The $8.5 million increase in earnings before interest and fair value gain (loss) YTD was principally due to
a decrease in operating expenses, partially offset by a decrease in revenues.
Net Interest Expense
Period
BPI’s net interest expense during the Period was $0.1 million, comprised mainly of $0.5 million of interest expense
on debt and financing costs, $0.1 million of interest expense on lease obligations and nominal interest expense on
payables owed to the Fund, partially offset $0.5 million of interest income received by BPI on its Class B general
partner units of Royalties LP (“Class B Units”). BPI’s net interest expense for the third quarter of 2020 was
$0.7 million, comprised mainly of $0.5 million of interest expense on the debt and financing fees, $0.1 million of
interest expense on payables owed to the Fund and $0.1 million of interest expense on lease obligations. The $0.6
million decrease in net interest expense for the Period was primarily due to the increase in interest income on the
Class B Units attributable to the Fund not declaring distribution on Fund Units during the third quarter of 2020.
YTD
BPI’s net interest expense was $0.4 million YTD, comprised mainly of $1.5 million of interest expense on debt and
financing costs, $0.2 million of interest expense on lease obligations and $0.1 million of interest expense on
payables owed to the Fund, partially offset $1.5 million of interest income received by BPI on its Class B
Units. Year-to-date in 2020, BPI’s net interest expense was $1.1 million, comprised mainly of $1.4 million of interest
expense on the debt and financing fees, $0.3 million of interest expense on lease obligations and $0.1 million of
interest expense on payables owed to the Fund, partially offset by $0.7 million of interest income received by BPI
on the Class B Units. The $0.7 million decrease in net interest expense YTD was primarily due to the increase in
interest income on the Class B Units attributable to the Fund not declaring distribution on Fund Units during the
second and third quarters of 2020.
Fair Value Gain (Loss)
Period
During the Period, BPI recognized a fair value gain of $2.2 million compared to $7.1 million for the same period in
2020. The change in fair value was principally due to the change in the price of Fund Units into which the Class B
Units are exchangeable and upon which the Class 2 LP Units liability is measured.
BPI estimates the fair value of the Class B Units by multiplying the number of Fund Units that BPI would be entitled
to receive if it exchanged all of the Class B Units (including the Class B Holdback) held by BPI at the end of the
Period by the closing price of a Fund Unit on the last business day of the Period. As at September 30, 2021, the
Fund’s closing price was $13.38 per Fund Unit (June 30, 2021 – $14.10 per Fund Unit) and the number of Fund
Units BPI would be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback) held
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 9 -
by BPI was 2,430,823 (June 30, 2021 – 2,430,823). Consequently, the Class B Units were calculated to be valued
at $32.5 million (June 30, 2021 – $34.3 million), resulting in a fair value loss of $1.8 million. In general, the value
of the Class B Units will increase as the market price of Fund Units increase and vice versa. In addition, the value
of the Class B Units increases as the number of Fund Units BPI would be entitled to receive if it exchanged all of
the Class B Units (including the Class B Holdback) increases and vice versa.
The Class 1 LP Units are entitled to distributions determined with respect to the interest cost paid by the Fund on
the credit facility of the Fund drawn on at the time of the 2015 Transaction to pay for the Fund’s indirect investment
in Class 1 LP Units of BP Canada LP. BPI estimates the fair value of the Class 1 LP Units liability using a market-
corroborated input, being the interest rate on the applicable credit facility. Consequently, BPI estimated the fair
value of Class 1 LP Units liability as at September 30, 2021 to be $33.3 million (June 30, 2021 – $33.3 million),
resulting in no fair value adjustment for the Period.
BPI estimates the fair value of the Class 2 LP Units liability by multiplying the number of Class 2 LP Units indirectly
held by the Fund at the end of the Period by the closing price of a Fund Unit on the last business day of the Period.
As at September 30, 2021, the Fund indirectly held 5,455,762 Class 2 LP Units (June 30, 2021 – 5,455,762) and
the Fund’s closing price was $13.38 per Fund Unit (June 30, 2021 – $14.10 per Fund Unit). Consequently, BPI
estimated the fair value of the Class 2 LP Units liability as at September 30, 2021 to be $73.0 million (June 30, 2021
– $76.9 million), resulting in a fair value gain of $3.9 million for the Period. In general, the fair value of the Class 2
LP Units liability will increase as the market price of Fund Units increases and vice versa.
YTD
YTD, BPI recognized a fair value loss of $7.7 million compared to a fair value gain of $24.0 million for the same
period in 2020. The change in fair value was principally due to the change in the price of Fund Units into which the
Class B Units are exchangeable and upon which the Class 2 LP Units liability is measured.
As at December 31, 2020, the Fund’s closing price was $10.83 per Fund Unit and the number of Fund Units BPI
would be entitled to receive if it exchanged all of the Class B Units (including the Class B Holdback) held by BPI
was 2,430,381. The Class B Units were calculated to be valued at $26.3 million as at December 31, 2020. As
discussed above, the Class B Units at the end of the Period were valued at $32.5 million. The difference between
the value of the Class B Units on December 31, 2020 and at the end of the Period is an increase of $6.2 million,
comprised of a fair value gain of $6.2 million and a nominal adjustment of Class B Additional Entitlements received
by BPI in February 2021 related to the January 1, 2020 Adjustment Date.
Holdings LP acquired the Class 1 LP Units on May 6, 2015 for $33.3 million. As discussed above, BPI estimates
the fair value of the Class 1 LP Units as at September 30, 2021 to be $33.3 million (December 31, 2020 –
$33.3 million), resulting in no fair value adjustment YTD.
As at December 31, 2020, the Fund indirectly held 5,455,762 Class 2 LP Units and the Fund’s closing price was
$10.83 per Fund Unit. Consequently, BPI estimated the fair value of the Class 2 LP Units liability as at
December 31, 2020 to be $59.1 million. As discussed above, BPI estimated the fair value of the Class 2 LP Units
liability as at September 30, 2021 to be $73.0 million, resulting in a fair value loss of $13.9 million YTD.
Earnings before Income Taxes
Period
Given the combined effects of the above-noted factors, BPI had earnings before income taxes of $8.8 million for
the Period compared to $8.1 million for the third quarter of 2020. The $0.7 million increase in earnings before
income taxes was primarily due to an increase in earnings before interest and fair value gain (loss) and a decrease
in net interest expense, partially offset by the decrease in fair value gain.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 10 -
YTD
Given the combined effects of the above-noted factors, BPI had earnings before income taxes of $1.1 million YTD
compared to $23.6 million year-to-date in 2020. The $22.5 million decrease in earnings before income taxes YTD
was primarily due to increase in fair value loss, partially offset by an increase in earnings before interest and fair
value gain (loss) and a decrease in net interest expense.
Income Tax Expense (Recovery)
Period
BPI recognized $1.3 million current income tax expense for the Period compared to $0.6 million for the third quarter
of 2020. The $0.7 million increase in current income tax expense for the Period is primarily due to higher earnings
before interest and fair value gain (loss).
BPI recognized $0.6 million deferred income tax expense for the Period compared to $1.8 million deferred income
tax recovery for the third quarter of 2020. The $2.4 million increase in deferred income tax expense is primarily due
to the valuation allowance recorded on the Class B Units for the Period. For the same period in 2020, the deferred
income tax recovery includes the tax impact of the change in fair value of the Class B Units for that period.
YTD
BPI recognized $1.8 million current income tax expense YTD compared to $1.6 million year-to-date in 2020. The
$0.2 million increase in current income tax expense YTD is primarily due to higher earnings before interest and fair
value gain (loss).
BPI recognized a $0.5 million deferred income tax expense YTD compared to $6.6 million deferred income tax
recovery year-to-date in 2020. The $7.1 million increase in deferred income tax expense is primarily due to the
valuation allowance recorded on the Class B Units YTD. For the same period in 2020, the deferred income tax
recovery includes the tax impact of the change in fair value of the Class B Units for that period and loss carry
forwards recognized for corporately owned restaurants.
Net and Comprehensive Income (Loss)
Period
BPI’s net and comprehensive income during the Period was $6.9 million compared to $9.3 million for the third
quarter of 2020. The decrease of $2.4 million in net and comprehensive income for the Period is primarily due to
the increase in income tax expense compared to the same period in 2020, partially offset by the increase in earnings
before income taxes.
YTD
BPI’s net and comprehensive loss YTD was $1.2 million compared to net and comprehensive income of
$28.5 million year-to-date in 2020. The decrease of $29.7 million in net and comprehensive income YTD is primarily
due to a decrease in earnings before income taxes and an increase in income tax expense.
Fund Units Outstanding
The following table sets forth a summary of the outstanding Fund Units. BPI owns 100% of the Class B Units and
1% of the ordinary general partner units of Royalties LP. BPI also owns 100% of the Class 2 GP Units, and 100%
of the Class 3, Class 4, Class 5 and Class 6 general partnership units of BP Canada LP. The Class B Units and
Class 2 GP Units are exchangeable for Fund Units. References to “Class B Additional Entitlements” and “Class 2
Additional Entitlements” in the table below refer to the number of Fund Units into which the Class B Units and
Class 2 GP Units, respectively, are exchangeable as of the dates indicated.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 11 -
Issued and Outstanding
Fund Units and Additional
Entitlements
Issued and Outstanding
Fund Units, Additional
Entitlements and Holdback
21,521,463
21,521,463
2,423,886
2,423,886
-
-
(1)
N/A
-
(1)
6,937
6,937
(2)
2,430,823
2,430,823
828,753
828,753
-
-
(1)
N/A
-
(1)
2,601
2,601
(2)
831,354
831,354
21,521,463
21,521,463
3,262,177
3,262,177
24,783,640
24,783,640
13.2%
13.2%
(1) Additional Entitlements to which BPI is entitled for adding to the Royalty Pool on January 1, 2021 additional Royalty and Distributions from
the two New Restaurants less the Royalty and Distributions lost from the 11 Closed Restaurants. Since a Deficiency existed, this amount
is nil.
(2) Additional Entitlements from the five New Restaurants added to the Royalty Pool on January 1, 2020 less the six Closed Restaurants
removed from the Royalty Pool on January 1, 2020 determined in 2021 once audited results of the five New Restaurants and the actual
effective tax rate paid by the Fund were known, and the adjustment for the seasonal Boston Pizza Restaurant that re-opened in 2020.
BPI directly and indirectly holds 100% of the special voting units (the “Special Voting Units”) of the Fund, which
entitle BPI to one vote in respect of matters to be voted upon by Unitholders for each Fund Unit that BPI would be
entitled to receive if it exchanged all of its Class B Units and Class 2 GP Units for Fund Units. As of November 10,
2021, BPI was entitled to 3,262,177 votes, representing 13.2% of the aggregate votes held by holders of Fund Units
and Special Voting Units. The number of Fund Units that BPI is entitled to receive upon the exchange of its Class B
Units and Class 2 GP Units and the number of votes that BPI is entitled to in respect of its Special Voting Units is
adjusted periodically to reflect any additional Boston Pizza Restaurants that were added to the Royalty Pool.
LIQUIDITY & CAPITAL RESOURCES
BPI is an entirely franchised business except for three corporate Boston Pizza Restaurants that it currently owns.
For 2021, BPI has forecasted capital requirements of approximately $2.3 million, which consist mainly of the
development of software applications and digital platforms, computer equipment, and leasehold improvements. BPI
believes it has sufficient cash and capital resources to cover forecasted expenditures, capital requirements,
commitments and repayments for 2021. BPI constantly monitors its operations and cash flows to ensure that
current and future obligations will be met. BPI believes its current sources of liquidity are sufficient to cover its
currently known short and long-term obligations. BPI manages its working capital with the Operating Line (defined
below), BCAP Loan (defined below) and the BDC Facilities (defined below).
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 12 -
Indebtedness
BPI Credit Facilities
BPI has credit facilities with a Canadian chartered bank (the “Bank”) in the amount of up to $35.7 million (originally
$43.3 million) expiring on December 31, 2022 (the “Credit Facilities”). The Credit Facilities are comprised of: (i) a
$10 million committed revolving facility to cover BPI’s day-to-day operating requirements if needed (the “Operating
Line”); and (ii) a $25.7 million (originally $33.3 million) committed non-revolving term facility that was used to
finance the reorganization of BPI and its shareholders that completed on September 30, 2017 (the “Term Loan”).
The Credit Facilities bear interest at variable rates, as selected by BPI. In the case of Canadian prime rate loans,
the interest rate is equal to the Bank’s prime rate plus between 1.50% and 2.50% (depending on the total funded
net debt to EBITDA ratio) and, in the case of bankers’ acceptances and Canadian dollar offered rate loans, the
interest rate is equal to a variable interest rate based on the Bank’s bankers’ acceptance rates or Canadian dollar
offered rates plus between 2.75% and 3.75% (depending on the total funded net debt to EBITDA ratio). The Term
Loan and the principal amount drawn on the Operating Line are due and payable upon maturity. The principal
amount drawn on the Term Loan must be reduced by quarterly payments, which permanently reduce the amount
available under the Term Loan.
The Credit Facilities are guaranteed by all of BPI’s subsidiaries except BP Canada LP, and BPI and each of those
subsidiaries have granted general security over their assets to secure their obligations under the Credit Facilities
and such guarantees. No security has been given by BP Canada LP in respect of the Credit Facilities. BPI and
each of BPI’s subsidiaries (including BP Canada LP) have also granted Royalties LP security over their assets to
secure BPI’s and BP Canada LP’s obligations to pay Royalty and Distributions. The Bank and Royalties LP entered
into a second amended and restated priority agreement dated April 11, 2018 to set forth their relative priorities to
such security, full details of which are described in the Fund’s Annual Information Form dated February 9, 2021, a
copy of which is available on www.sedar.com.
The principal financial covenant under the Credit Facilities is that BPI’s trailing 12-month EBITDA must not be less
than certain specified values and will be tested on a quarterly basis. The first amended and restated credit
agreement dated January 24, 2020 between BPI and the Bank, as amended by the first supplemental credit
agreement dated June 22, 2020 governing the Credit Facilities contains certain covenants and restrictions,
including the requirement for BPI to have sufficient trailing 12-month EBITDA as previously described. A failure of
BPI to comply with these covenants and restrictions could entitle the Bank to demand repayment of the outstanding
balance drawn on the Credit Facilities prior to maturity. BPI was in compliance with all of its financial covenants
and financial condition tests at September 30, 2021. As of September 30, 2021, no amount was drawn on the
Operating Line and $25.7 million was outstanding on the Term Loan.
BCAP Loan
On June 22, 2020, the Bank loaned BPI $6.25 million under Export Development Canada’s business credit
availability program (the “BCAP Loan”). The BCAP Loan may be used to provide additional liquidity to finance
operations, and may not be used (i) to repay or refinance existing debt obligations, (ii) to make distributions; or
(iii) to pay any bonuses or increases to executive compensation. The BCAP Loan has a term of one year, which
may be extended annually at the request of BPI for up to five years subject to compliance with certain requirements.
On June 22, 2021, BPI extended the BCAP Loan for one year. The BCAP Loan requires interest only payments
for the first year and is repayable in monthly blended payments of principal and interest amortized over four years
commencing after the first year of the term, with any remaining balance outstanding being due upon expiry of the
term. The BCAP Loan bears interest at the Bank’s prime rate plus 2.5% and is subject to an annual fee equal to
1.8% of the total amount of credit available (i.e. $6.25 million). The BCAP Loan is guaranteed by all of BPI’s
subsidiaries except BP Canada LP, and is secured by the same security that secures the Credit Facilities to the
Bank. That security shares priority with the general security agreements granted by BPI and its subsidiaries to the
Bank under the Credit Facilities. As of September 30, 2021, $5.9 million was drawn on the BCAP Loan.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 13 -
BDC Facilities
On July 7, 2020, Business Development Bank of Canada (“BDC”) loaned BPI $2.0 million under the federal
government’s COVID-19 relief programs (the “BDC Facilities”). The BDC Facilities may be used for working capital
purposes, have a term of three years and are repayable in a combination of monthly payments commencing after
the first year of the term and a balloon payment upon maturity. The BDC Facilities bear interest at Business
Development Bank of Canada’s floating base rate (currently 4.55% per annum) less 1.75% (i.e. currently 2.80%).
The BDC Facilities are secured by a subordinate charge over all of BPI’s assets and are guaranteed by all of BPI’s
subsidiaries except BP Canada LP. All of BPI’s subsidiaries other than BP Canada LP have granted BDC a
subordinate charge over all of their assets to support such guarantees. The security held by BDC is subordinate to
the security held by the Bank to secure the Credit Facilities with the Bank and the security held by the Fund to
secure BPI’s obligation to pay Royalty and Distributions. As of September 30, 2021, $1.8 million was drawn on the
BDC Facilities.
Acquired Restaurant Credit Facility
In 2016 and 2017, a subsidiary of BPI established a $4.2 million credit facility with the Bank for the purposes of
funding a portion of the acquisition cost for a Boston Pizza Restaurant that such subsidiary purchased from a former
franchisee of BP Canada LP in June 2016 (the “Acquired Restaurant”) and making renovations to the Acquired
Restaurant. On June 22, 2020, that credit facility was amended, among other things, to reduce the available credit
to approximately $3.3 million and change the expiry date to March 31, 2022 (such facility as amended, the
“Acquired Restaurant Credit Facility”). BPI has guaranteed the Acquired Restaurant Credit Facility to the Bank.
As of September 30, 2021, $2.6 million was drawn on the Acquired Restaurant Credit Facility. As the Acquired
Restaurant Credit Facility is due March 31, 2022, the loan has been classified as a current liability. BPI intends to
either refinance or repay this credit facility upon maturity.
Contractual Obligations and Commercial Commitments
A summary of the estimated amount and estimated timing of cash flows related to BPI’s contractual obligations and
commercial commitments as at September 30, 2021 is as follows:
Note:
1) Includes estimated interest on long-term debt and excludes deferred financing costs of $0.4 million.
2) Represents minimum annual rental payments under lease contracts for office space, restaurants space and equipment.
Cash Flows
Cash Flow from Operating Activities
Period
During the Period, operating activities generated $5.0 million of cash compared to $7.0 million during the third
quarter of 2020. The decrease in cash generated of $2.0 million during the Period was primarily due to a decrease
in changes in working capital and a decrease in income tax received, partially offset by an increase in net income
after adjustments for non-cash items.
(in thousands of dollars) Within 1 year 2 - 3 years 4 - 5 years Over 5 years Total Book Value
Accounts payable and accrued liabilities
and income taxes payable 8,049 - - - 8,049 8,049
Royalty and distributions payable to the Fund 4,191 - - - 4,191 4,191
Debt
1
8,607 28,306 1,276 - 38,189 35,984
Other long-term liabilities - 1,152 - - 1,152 1,152
Lease obligations
2
1,365 1,810 1,210 1,835 6,220 5,145
22,212 31,268 2,486 1,835 57,801 54,521
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 14 -
YTD
YTD, operating activities generated $9.0 million of cash compared to $0.2 million year-to-date in 2020. The
increase in cash generated of $8.8 million YTD was primarily due to an increase in net income after adjustments
for non-cash items and an increase in changes in working capital, partially offset by an increase in net income taxes
paid.
Cash Flow from Financing Activities
Period
During the Period, financing activities used $2.3 million of cash compared to cash generated of $0.4 million during
the third quarter of 2020. The increase in cash used of $2.7 million during the Period was primarily due to proceeds
received from capital contribution from BPI’s parent company and debt in the third quarter of 2020 and higher lease
obligations paid in the current Period, partially offset by decrease in repayment of debt and BPI not having to repay
the Operating Line.
YTD
YTD, financing activities used $6.0 million of cash compared to cash generated of $7.8 million year-to-date in
2020. The increase in cash used of $13.8 million YTD was primarily due to proceeds received from capital
contribution from BPI’s parent company and debt in the second and third quarters of 2020 and higher lease
obligations paid YTD, partially offset by a decrease in repayment of debt and BPI not having to repay the Operating
Line and shareholder loan.
Cash Flow from Investing Activities
Period
During the Period, investing activities used $0.1 million of cash compared to $0.3 million during the third quarter of
2020. Cash used from investing activities typically represents purchases of property and equipment as well as
intangible assets. Cash generated from investing activities typically represents distributions received by BPI on the
Class B Units. The decrease in cash used of $0.2 million during the Period was primarily due to an increase in
distributions received on Class B Units, partially offset by a higher purchase of intangible assets.
YTD
YTD, investing activities generated $1.5 million of cash compared to $0.2 million year-to-date in 2020. The increase
in cash generated of $1.3 million YTD was primarily due to an increase in distributions received on Class B Units,
partially offset by a higher purchase of intangible assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 15 -
Related Party Transactions
BPI’s related party balances owing at the end of the period and related party transactions for the Period were as
follows:
(1) On June 22, 2020, BPI received $5.0 million of capital from its parent company. On September 24, 2020,
BPI received $5.0 million of additional capital from its parent company.
(2) The Fund is considered to be a related party of BPI by virtue of common officers and directors of BPI and
Boston Pizza GP Inc., the managing general partner of Royalties LP. The Fund has engaged Royalties LP,
its administrator, to provide certain administrative services on behalf of the Fund (“Administrative
Services”). In turn, certain of the Administrative Services are performed by BPI as a general partner of
Royalties LP. Under the terms of the partnership agreement governing Royalties LP, BPI is entitled to be
reimbursed for certain out-of-pocket expenses incurred in performing the Administrative Services. The total
amount paid to BPI in respect of these services for the Period was $0.1 million (Q3 2020 – $0.1 million). BPI
and Royalties LP agreed to limit the annual amount of out-of-pocket expenses for which BPI is entitled to be
reimbursed to not more than $0.4 million for each of 2020, 2021 and 2022, with such limit increasing by not
more than the percentage change in the Canadian Consumer Price Index (as calculated by Statistics Canada)
in the calendar year prior thereafter.
Other related party transactions and balances are referred to elsewhere in this MD&A.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the Period, there was no change in BPI’s internal control over financial reporting that materially affected, or
is reasonably likely to materially affect, BPI’s internal controls over financial reporting. BPI complies with the
Committee of Sponsoring Organizations of the Treadway Commission Internal Control – Integrated
Framework: 2013.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of BPI’s consolidated financial statements in accordance with IFRS requires estimates and
judgments to be made that affect the reported amounts of assets and liabilities, earnings and expenses, and related
disclosures. These estimates are based on historical experience and knowledge of economics, market factors and
(in thousands of dollars)
September
30, 2021
September
30, 2020
Accounts receivables due from associated companies $
809 $ 3,349
Accounts payable due to associated companies
38 48
Royalty payable to Royalties LP
3,187 6,418
Distributions payable to Holdings LP
1,004 2,027
Additional capital from parent company
(1)
- 10,000
(in thousands of dollars)
Q3 2021 Q3 2020 YTD 2021 YTD 2020
Revenues from a company under common control
$ 872 $ 769 $ 1,951 $ 1,827
Fees charged to the Fund in respect of administrative services
(2)
100 100 300 300
Royalty expense to the Fund
8,522 7,417 19,075 18,666
Distribution expense to the Fund
2,815 2,452 6,329 6,168
Management fees paid for services rendered to companies
under common control - - - 409
Management fees paid to companies under common control
included in compensation expense - - - 216
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 16 -
the restaurant industry along with various other assumptions that are believed to be reasonable under the
circumstances.
BPI believes that the following selected accounting policies are critical to understanding the estimates, assumptions
and uncertainties that affect the amounts reported and disclosed in BPI’s consolidated financial statements and
related notes:
Estimate – Investment in Royalties LP
BPI’s investment in Royalties LP is principally comprised of the Class B Units. The value of New Restaurants rolled
into the Royalty Pool is also recognized within BPI’s investment in Royalties LP through BPI’s right to receive
Class B Additional Entitlements. The value of the Class B Additional Entitlements that BPI will be entitled to as a
result of adding New Restaurants to the Royalty Pool is determined on a formula basis that is designed to estimate
the present value of the cash flows due to the Fund as a result of the New Restaurants being added to the Royalty
Pool. As such, the calculation is dependent on a number of variables including the estimated long-term sales of
the New Restaurants and a discount rate. The value of the Class B Additional Entitlements that BPI will be entitled
to as a result of adding New Restaurants to the Royalty Pool could differ from actual results and may impact the
investment in Royalties LP and deferred gains line items.
Estimate – Accounts Receivable
BPI provides an allowance for uncollectable trade receivables based on a customer-by-customer basis using
estimates for past and current performance, aging, arrears status, the level of allowance already in place, and
management’s interpretation of economic conditions specific to BPI’s customer base. If certain judgments or
estimates prove to be inaccurate, BPI’s results of operations and financial position may be impacted.
Estimate – Class B Units, Class 1 LP Units, and Class 2 LP Units
BPI must classify fair value measurements according to a hierarchy that reflects the significance of the inputs used
in performing such measurements. BPI’s fair value hierarchy comprises the following levels:
• Level 1 – quoted prices are available in active markets for identical assets or liabilities as of the reporting
date. Active markets are those in which transactions occur in sufficient frequency and volume to provide
pricing information on an ongoing basis.
• Level 2 – pricing inputs are other than quoted in active markets included in Level 1. Prices in Level 2 are
either directly (i.e. as prices) or indirectly (i.e. derived from prices) observable as of the reporting date.
• Level 3 – valuations in this level are those with inputs for the asset or liability that are not based on
observable data.
The fair values of the Class B Units, Class 1 LP Units liability and Class 2 LP Units liability are all determined using
Level 2 inputs and are measured on a recurring basis.
(i) Class B Units
BPI has elected under IFRS to measure the Class B Units as a financial asset at fair value through profit and
loss. This requires that BPI use a valuation technique to determine the value of BPI’s investment in BP Royalties
LP at each reporting date. The Class B Units are exchangeable for Fund Units, and thus, it is estimated that the
value of the Class B Units approximates the number of Fund Units into which they are exchangeable. The Fund
estimates the fair value of the Class B Units liability by multiplying the issued and outstanding Class B Additional
Entitlements (including Class B Holdback) held by BPI at the end of the period by the closing price of the Fund Units
on the last business day of the period.
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 17 -
This valuation technique may not represent the actual value of the financial asset should such units be extinguished
and changes in the distribution rate on the Class B Units and the yield of the Fund Units could materially impact
BPI’s financial position and net and comprehensive income.
(ii) Class 1 LP Units Liability and Class 2 LP Units Liability
The Class 1 LP Units liability and Class 2 LP Units liability are classified as financial liabilities measured at fair value
through profit or loss because the entitlements to distributions are considered embedded derivatives to the limited
partnership units. BPI measures the Class 1 LP Units liability and Class 2 LP Units liability at fair value using
Level 2 inputs, which may result in a fair value adjustment on the BP Canada LP units liability line on the statements
of financial position, and the fair value loss (gain) line on the statements of comprehensive income and a
corresponding non-cash adjustment line on the statements of cash flows.
The fair value of the Class 1 LP Units liability for BPI mirrors the fair value of the investment in Class 1 LP Units
asset recognized by the Fund for any particular period. The Class 1 LP Units are entitled to distributions with
respect to the interest payable by the Fund on the credit facility to pay for the Fund’s indirect investment in Class 1
LP Units of BP Canada LP. BPI estimates the fair value of Class 1 LP Units liability using a market-corroborated
input, being the interest rate on the applicable credit facility. Consequently, BPI estimates the fair value of Class 1
LP Units liability at carrying value adjusted for interest rate risk.
The fair value of the Class 2 LP Units liability for BPI mirrors the fair value of the investment in Class 2 LP Units
asset recognized by the Fund for any particular period. The Class 2 LP Units have similar cash distribution
entitlements and provisions to the Class 2 GP Units held by BPI, which are exchangeable for Fund Units. The fair
value of the Class 2 LP Units is determined using a market approach, which involves using observable market
prices for similar instruments. The fair value of the Class 2 LP Units is determined by multiplying the issued and
outstanding Class 2 LP Units indirectly held by the Fund at the end of the period by the closing price of a Fund Unit
on the last business day of the period.
These valuation techniques may not represent the actual value of the Class 1 LP Units liability and Class 2 LP Units
liability should such liabilities be extinguished. Changes in the distribution rates on the Class 1 LP Units and Class 2
LP Units and the yield of Fund Units could materially impact BPI’s financial position and net income.
Judgment – Consolidation
Applying the criteria outlined in IFRS 10, judgment is required in determining whether BPI controls Royalties LP
and BP Canada LP. Making this judgment involves taking into consideration the concepts of power over
Royalties LP and BP Canada LP, exposure and rights to variable returns, and the ability to use power to direct the
relevant activities of Royalties LP and BP Canada LP so as to generate economic returns. With respect to Royalties
LP, using these criteria, management has determined that BPI does not ultimately control Royalties LP. With
respect to BP Canada LP, using these criteria, management has determined that BPI ultimately controls BP Canada
LP through its ability to direct relevant activities to generate economic returns from BP Canada LP and its
governance as managing general partner of BP Canada LP.
SHORT-TERM OUTLOOK
The information contained in this “Short-Term Outlook” section is forward-looking information. Please see the “Note
Regarding Forward-Looking Information” and “Risks & Uncertainties” sections of this MD&A for a discussion of the
risks and uncertainties in connection with forward-looking information.
COVID-19 had sudden, unexpected and unprecedented impacts on the general economy, the restaurant industry
and has specifically caused significant disruption to the business of the Fund, BPI and BP Canada LP. The focus
of BPI’s management is to continue to: (i) monitor carefully the continuously evolving COVID-19 situation; (ii) modify
the operating procedures of Boston Pizza Restaurants to ensure the safety of guests and staff of BP Canada LP’s
franchisees; (iii) responsibly and safely operate the dining rooms, sports bars and patios of Boston Pizza
Restaurants across Canada as permitted by applicable provincial health authorities; (iv) maximize the opportunity
to grow its take-out and delivery business; and (v) review and adapt current and future plans to responsibly address
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 18 -
the challenges and opportunities presented by COVID-19. Management of BPI anticipates that sales levels for the
second half of 2021 may be favourable compared to the first half of 2021 due to the easing of governmental
restrictions in June 2021, however, COVID-19 will continue to have a negative and volatile impact on the business
of Boston Pizza Restaurants during the remainder of 2021.
RISKS & UNCERTAINTIES
Risks Related to the Business of BPI and BP Canada LP
Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy
The Canada Emergency Wage Subsidy (“CEWS”) was a program that provided a subsidy of up to 75% of
remuneration paid by an employer to each eligible employee up to a maximum of $847 per week. The Canada
Emergency Rent Subsidy (“CERS”) was a program available to Canadian businesses, non-profit organizations, or
charities who saw a drop in revenue during the COVID-19 pandemic to cover part of their commercial rent or
property expenses. The CEWS and CERS programs expired on October 23, 2021. On October 21, 2021, the
federal government introduced The Tourism and Hospitality Recovery Program, which will provide additional
support to companies in the tourism and hospitality industry experiencing at least a 40% revenue reduction, with
the program expected to extend until May 7, 2022.
A number of Boston Pizza Restaurants were receiving CEWS and/or CERS. Fewer Boston Pizza Restaurants may
be eligible for the Tourism and Hospitality Recovery Program than were eligible for CEWS and/or CERS. It is
unknown to what extent the replacement of the CEWS and CERS programs with the Tourism and Hospitality
Recovery Program will affect the financial condition of Boston Pizza Restaurants. If fewer Boston Pizza Restaurants
are eligible to participate in the Tourism and Hospitality Recovery Program than CEWS and/or CERS, it may
decrease their profitability, thereby increasing risks of Boston Pizza Restaurants closing.
Supply Chain Disruption / Labour Availability
As economies reopen, the global recovery from the economic impacts of COVID-19 is disrupting supply chains
around the world. In addition, multiple economic sectors reopening simultaneously is creating a temporary but
significant labour shortage throughout North America. While Boston Pizza currently has a stable supply chain, it is
possible that the global supply chain disruption caused by COVID-19 could result in supply interruptions, commodity
unavailability or increased commodity costs for Boston Pizza Restaurants. In addition, the current labour shortage
may impede Boston Pizza Restaurants’ ability to attract and retain sufficient numbers of qualified staff. If Boston
Pizza Restaurants are unable to source sufficient raw materials and labour at reasonable prices, it may: (i) limit
their ability to generate Franchise Sales, and/or (ii) decrease their profitability, thereby increasing risks of Boston
Pizza Restaurants closing.
For more information on risks and uncertainties related to BPI and the Fund, please refer to the Fund’s and BPI’s
MD&As for the year-ended December 31, 2020 available on SEDAR at www.sedar.com.
ADDITIONAL INFORMATION
Additional information relating to BPI, the Fund, Royalties LP, Boston Pizza GP Inc., BPCHP, Boston Pizza Holdings
Trust, Holdings LP, Boston Pizza Holdings GP Inc. and BP Canada LP, including the Fund’s Annual Information
Form dated February 9, 2021, is available on SEDAR at www.sedar.com and on the Fund’s website at
www.bpincomefund.com.
NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain information in this MD&A constitutes “forward-looking information” that involves known and unknown risks,
uncertainties, future expectations and other factors which may cause the actual results, performance or
achievements of BPI, the Fund, Boston Pizza Holdings Trust, Royalties LP, Holdings LP, Boston Pizza Holdings
GP Inc., Boston Pizza GP Inc., BPCHP, BP Canada LP, Boston Pizza Restaurants, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by such forward-
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 19 -
looking information. When used in this MD&A, forward-looking information may include words such as “anticipate”,
“estimate”, “may”, “will”, “should”, “expect”, “believe”, “plan”, “forecast” and other similar terminology. This
information reflects current expectations regarding future events and operating performance and speaks only as of
the date of this MD&A.
Forward-looking information in this MD&A includes, but is not limited to, such things as:
All statements, other than statements of historical facts, included herein that address events or developments that
management of BPI expects or anticipates will or may occur in the future are forward-looking information. Forward-
looking information in this MD&A includes, but is not limited to, such things as:
• future distributions and dates distributions are to be paid or payable;
• how changes in distributions will be implemented;
• how distributions will be funded;
• management anticipates that sales levels for the second half of 2021 may be favourable compared to the
first half of 2021 due to the easing of governmental restrictions in June 2021, however, COVID-19 will
continue to have a negative and volatile impact on the business of Boston Pizza Restaurants during the
remainder of 2021;
• Boston Pizza Restaurants will close for two to three weeks to complete a renovation and experience an
incremental sales increase in the year following the re-opening;
• impact of seasonality on Franchise Sales;
• the “Four Pillars” strategy will continue to focus BPI’s and BP Canada LP’s efforts to develop new markets
and strengthen Boston Pizza’s position as Canada’s number one casual dining brand;
• estimates relating to the amount and timing of cash flows related to BPI’s contractual obligations and
commercial commitments;
• adjustments to Additional Entitlements that are to occur in the future and when such adjustments will occur;
• belief that BPI has sufficient cash and capital resources for 2021, and that its current sources of liquidity
are sufficient to cover its currently known short and long-term obligations;
• BPI constantly monitoring its operations and cash flows to ensure that current and future obligations will be
met;
• that BPI’s strategy is to divest itself from the remaining three corporately owned Boston Pizza Restaurants
and exclusively focus on strengthening the brand and its franchised business;
• that the global supply chain disruption caused by COVID-19 could result in supply chain interruptions,
commodity unavailability or increased commodity costs for Boston Pizza Restaurants;
• that the current labour shortage may impede Boston Pizza Restaurants’ ability to attract and retain sufficient
numbers of qualified staff;
• that fewer Boston Pizza Restaurants may be eligible for the Tourism and Hospitality Recovery Program
than were eligible for CEWS and/or CERS, which may result in a decrease to their profitability, thereby
increasing risks of Boston Pizza Restaurants closing;
• that in the event Boston Pizza Restaurants are unable to source sufficient raw materials and labour at
reasonable prices, it may (i) limit their ability to generate Franchise Sales; and/or (ii) decrease their
profitability, increasing risks of Boston Pizza Restaurants closing;
• BPI and BP Canada LP aggressively enhancing and promoting the Boston Pizza brand;
• that BPI intends to either refinance or repay the Acquired Restaurant Credit Facility upon its maturity;
• BPI continuing to: (i) monitor carefully the continuously evolving COVID-19 situation; (ii) modify the
operating procedures of Boston Pizza Restaurants to ensure the safety of guests and employees of
BP Canada LP’s franchisees; (iii) responsibly and safely re-open the dining rooms and sports bars of
Boston Pizza Restaurants across Canada as permitted by applicable provincial health authorities; (iv)
maximize the opportunity to grow its take-out and delivery business; and (v) review and adapt current and
future plans to responsibly address the challenges and opportunities presented by COVID-19; and
• BPI making responsible adjustments to its business as circumstances warrant.
The forward-looking information disclosed herein is based on a number of assumptions including, among other
things:
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 20 -
• absence of amendments to material contracts;
• no strategic changes of direction occurring;
• absence of changes in law;
• protection of BP Rights;
• pace of commercial real estate development;
• franchisees’ access to financing;
• franchisees duly paying franchise fees and other amounts;
• there will be no closures of Boston Pizza Restaurants that materially affect the amount of Royalty paid by
BPI to Royalties LP or the amount of Distributions paid by BP Canada LP to Holdings LP;
• future results being similar to historical results;
• expectations related to future general economic conditions;
• management of BPI and BP Canada LP maintaining current strategies to drive higher guest traffic and
higher average guest cheques;
• Boston Pizza Restaurants maintaining operational excellence;
• culinary innovation and menu re-pricing;
• continuing operations of key suppliers;
• availability of experienced management and hourly employees;
• ability to obtain qualified franchisees;
• ability to open sufficient New Restaurants to replace Franchise Sales of Closed Restaurants;
• ability to comply with disclosure obligations under franchise laws and regulations;
• ability to obtain adequate insurance coverage;
• ability to enter into arrangements with suppliers and distributors to generate competitive pricing for
franchisees and revenue for BP Canada LP;
• ability to refinance or repay the Acquired Restaurant Credit Facility upon maturity;
• ability to cover forecasted expenditures, capital requirements, commitments and repayments for 2021;
• current sources of liquidity are sufficient to cover currently known short and long term obligations;
• COVID-19 will continue to negatively impact Boston Pizza dining rooms and sports bars across Canada;
and
• COVID-19 and its related restrictions will continue to dissipate.
This forward-looking information involves a number of risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any results, performance or achievements
expressed or implied by the forward looking information contained herein including, but not limited to:
• competition;
• consumer spending habits;
• consumer confidence in the retail sector;
• household debt;
• weather;
• pricing;
• changes in demographic trends;
• changes in consumer preferences and discretionary spending patterns;
• changes in national and local business and economic conditions;
• legislation and government regulation;
• cash distributions are not guaranteed;
• accounting policies and practices;
• the results of operations and financial conditions of BPI and the Fund;
• inflation;
• publicity from any food borne illness;
• increase in food, labour or benefits costs;
• Boston Pizza Restaurant closures;
• successful challenge of the BP Rights;
• inadequacy of insurance coverage;
• increases in sales tax;
MANAGEMENT’S DISCUSSION AND ANALYSIS
BOSTON PIZZA INTERNATIONAL INC.
For the three-month and nine-month periods ended September 30, 2021
- 21 -
• litigation against franchisees;
• inability to attract and retain key personnel;
• data security breaches and technological failures;
• pandemics and national health crises, in particular COVID-19;
• government restrictions with respect to the operation of Boston Pizza dining rooms and sports bars across
Canada, including the implementation of vaccine card and vaccine passport systems, and their impact on
Franchise Sales and SRS; and
• the replacement of the CEWS and CERS programs with the Tourism and Hospitality Recovery Program
and the effect it will have on the financial condition of Boston Pizza Restaurants.
The foregoing list of factors is not exhaustive and should be considered in conjunction with the risks and
uncertainties set out in the Management’s Discussion & Analysis of BPI for the period and year ended December 31,
2020.
This MD&A discusses some of the factors that could cause actual results to differ materially from those expressed
in or underlying such forward-looking information. Forward-looking information is provided as of the date hereof
and, except as required by law, BPI assumes no obligation to update or revise forward-looking information to reflect
new events or circumstances.